China Contrarian View Becoming More Popular

By Reshma Kapadia

After talking to three fund manager/strategists in a row who have started the conversation by telling me that they have a “controversial” or “against consensus” view on China with their overweight in this part of the market, I sense a bit of a trend, suggesting perhaps that the view is not so contrarian.

Most cite valuation as the reason for the draw to China, with David Semple, manager of the Van Eck Emerging Markets fund (GBFAX), noting that the pervasive gloom in the valuations doesn’t really reflect reality. For his part, Semple like some smaller quality stocks, including industrials.

Richard Titherington, chief investment officer for emerging markets equities at J.P. Morgan Asset Management, also notes that after months of policy paralysis, the government is likely to be more active next year–offering another reason for less gloom.

HSBC’s Global Head of Equity Strategist Garry Evans, who is based in Hong Kong, says growth is moderating with recent purchasing managers surveys showing signs of a pick up. While the market may not be as compelling as it was prior to the last six-week run, he is still overweight China though taking a much more selective approach.

Automakers and department stores, he notes, still offers reasonable valuations but he says staples are pretty expensive and he is still wary about Chinese banks and thinks they may be a value trap.

“You’ve heard of ‘Don’t fight the Fed.’ Well, you can also say don’t fight Chinese government either,” Evans said, noting his long-term preference to favor areas the government is trying to encourage, such as consumption and structural industries like automakers, pharmaceuticals and telecom equipment.

The SPDR S&P China fund (GXC) is up almost 2% in afternoon trading at $68.21 and up 9% so far this year.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.